A new dawn for utilities and concession contracts

William Curry, Partner and Head of Procurement at leading law firm Arthur Cox, explains the latest UK procurement legislation.

While the minds of many business commentators have been focused on looking ahead to changes in the context of the European Union, two recent pieces of legislation resulting from European Directives are already having a major impact in the local procurement arena.

Just over a year since the procurement rules for public sector contracting authorities underwent a significant overhaul, the new legislation – this time focusing on utilities and concession contracts – has been enacted.

The Concession Contracts Regulations 2016 and the Utilities Contracts Regulations 2016 came into effect on

18 April. These complete the implementation of the three European Directives adopted in 2014 regarding procurement, the third of which was the public sector directive, which was implemented in February 2015 by the adoption of the Public Procurement Regulations 2015 (the “PCR 2015”).

The objective of the new legislation is to clarify the rules, simplify the procedures and improve access for Small and Medium Enterprises (SMEs), while still ensuring EU member states can secure high-quality goods and services, and deliver value for money.

The changes to the law were designed to allow for a more straightforward approach to the procurement process, making it faster and less costly for procuring entities and private sector suppliers alike.

As was the case last February when the PCR 2015 were introduced, these two latest regulations now introduce a range of different concepts into the procurement arena. Inevitably, there will be a period of adaptation to the new rules by procuring entities.

However, for utilities covered by these new rules, this task should arguably be easier on the basis that the changes contain a number of similarities to those set out in the PCR 2015, with which public sector procuring authorities have been getting to grips since last year. It’s imperative that all public bodies, utilities and private companies, in their capacity as suppliers, waste no time in ensuring they are fully informed of the new laws — and are aware of their potential impacts.

Utilities Contracts Regulations 2016

Looking at the Utilities Contracts Regulations 2016 (the “UCR 2016”) in detail, these have been introduced to codify case law, provide additional flexibility and facilitate SMEs participating more fully in the market. They introduce quite a number of changes for utilities that have already been implemented for public sector contracting authorities as part of the PCR 2015.

For example, procurement documents now have to be made available from the date of advertisement. A new “Light Touch” regime has been introduced for certain social and other specified services, meaning they have to be advertised across the EU, although without the need to follow the full scope of rules.

Similar provisions to those that were introduced for public bodies last year are now included for utilities in relation to codifying the case law on identifying whether a proposed change to an existing contract is ‘substantial’ and, as such, whether such change can be accommodated within the existing contract — or if a new contract procedure is required.

An important stipulation of the UCR 2016 is that a minimum required turnover at selection stage cannot generally exceed twice the contract value. It also permits the same exclusion grounds as those introduced by the PCR 2015, which it is worth noting introduce a number of additional grounds, such as the express ability to exclude if a previous prior contract has been terminated.

As well as replicating a number of the provisions that have been applied to public sector procuring bodies for the last year, the UCR 2016 also introduce some new provisions for utilities. There is now an eight-year limit imposed on the length of framework agreements, where previously there was no express limit specified.

Another element of the legislation introducing additional regulation for utilities is the requirement that call-off evaluation criteria for contracts awarded pursuant to the framework must be set out in the procurement documents, and the framework agreement. If the direct award route under the framework agreement is to be used, then applicable criteria to determine how the direct award is to be made must be provided from the outset.

Furthermore, the new regulations have made competitive dialogue available to utilities for the first time as well as a new procedure of innovation partnerships — which is to be welcomed.

It’s also vital for utilities and private companies to be fully aware of the introduction of new termination rights, as specified in Regulation 88, which imply a right for the utility to terminate the contract (as a matter of law if not expressly provided for). The grounds for termination are: if the contract is subject to substantial modification; if the contractor was in one of the exclusion grounds; or if there was a serious infringement of the Treaties. In particular, it is worth noting that these rights apply not just to contracts awarded after 18th April 2016, but also to contracts awarded under the Utilities Contracts Regulations 2006.

Concession Contracts Regulations 2016

The Concession Contracts Regulations 2016 (the “CCR 2016”) impose obligations on utilities and contracting authorities procuring works and services concession contracts with a value estimated in excess of £4,104,394. Previously, only public works concessions were subject to the full scope of EU Regulations, but that’s no longer the case.

The legislation is a lighter touch than under the PCR 2015 or the UCR 2016 regarding procedures to be followed, but has similar provisions in terms of the treatment of operators, selection and award criteria.

There are also express provisions concerning electronic availability of procurement documents, minimum time limits, modification of contracts and the imposing of a similar remedies regime. An important point to note is that the CCR 2016 limit the maximum duration of concession contracts to five years, or, if longer, the time expected for a concession to reasonably recoup its investments.

Experience

As this summary illustrates, there is a lot to digest in these latest pieces of procurement legislation and there has been little time for procuring bodies to get up to speed on the new rules. It is important to remember, however, that the new regime is now in place throughout the UK and it is vital that utilities, public bodies, other contracting authorities and contractors alike are fully up to speed with the new regulations, are aware of the procedures, rights and obligations — and don’t risk non-compliance.

However, what may be helpful is that many of the principles have now been in force for public bodies for over a year and the experience in this regard will be vital in coming to terms with the new rules.

The team at Arthur Cox is well positioned to advise on all aspects of public procurement law as well as providing general corporate and commercial law advice on all aspects of your business.